How to stay afloat -- and get out of debt
Creators News Service
Fresh out of college, Dave Ramsey made it big buying and selling real estate. Then he went broke.
"I went from rags to riches to rags before I got some common sense and found out how money really works," said the best-selling author and nationally syndicated radio host of "The Dave Ramsey Show."
For the past 17 years, he's been offering his strategies for getting out of debt to listeners laboring under monumental expenses. Today there are more than 30,000 graduates of Ramsey's "Total Money Makeover" plan.
"Getting out of debt is not rocket science," he said. "It's common sense, self-discipline and a budget. A budget is a written game plan that tells your money where to go instead of wondering where it went. You need to commit to it and stick to it."
It means you start paying off the debt and it definitely means living on less than you make, he said.
Seven precepts, which Ramsey calls "baby steps," are at the core of his program. Combined with your budget and commitment, they virtually guarantee success in becoming debt free.
These steps are designed to offer quick results and keep you motivated while offering additional income to fight your other expenses:
* Establish a $1,000 emergency fund for unexpected events. It should be in place before attacking the next six steps.
* Eliminate debts with the "debt snowball," which pays off debts from the smallest to the largest. List debts in that order and pay the minimum on all of them monthly. Put any money left over on the smallest debt to get it paid off as soon as possible. Then move on to the next smallest debt and repeat the process. This method offers immediate, positive feedback and encourages you to keep going.
* Accrue savings that total three to six months of expenses. This is money you plan for something within the next five years such as a car, college or a great trip. It's best kept in a money market account where it is safe and available when you want it -- regardless of how the stock market is performing that day.
* After you have paid off your debts, invest fifteen percent of your income into IRAs and pre-tax retirement plans. Do not withdraw from them -- unless you want to face a penalty.
* Research college funding options. Look into grants and scholarships, affordable colleges and part-time work before considering student loans.
* Pay off your home early. You can do this when you become debt free.
* Build wealth and give back by empowering others with the practical truths of debt-free living.
"The average time for people to become debt free -- except for a home mortgage and an emergency savings -- is between eighteen months and two-and-a-half years," Ramsey said.
Getting out of debt is tough, Ramsey acknowledged. "But these are a pretty tough bunch of fighters," he said of people following his plan. "And financial peace is worth what it takes to achieve."
Forms for budgeting what you have, what you need and what you owe can be downloaded from Ramsey's website, daveramsey.com. Other available tools include an online 13-week course, access to others who are conquering debt and Ramsey's best-selling books, "More than Enough," "Financial Peace Revisited" and "The Total Money Makeover."
Money managers countrywide agree on the following strategies -- some time-honored, some new -- for eliminating debt and saving money.
* Create a monthly budget and adhere to it.
* Pay cash for most purchases. A plastic debit card takes money directly from your checking account, but it doesn't engender the prudence exercised when spending cash.
* Maintain a credit card or two, but use them mainly for emergencies and pay the balance in full each month.
* Avoid impulse buying. Ask yourself, "Do I really need this? Can I honestly afford it?"
* Buy in bulk when appropriate and stock up on necessities when they are on sale.
* Reduce spending on discretionary items such as movies and dining out.